There’s not a day goes by that I don’t see some variation on the theme that China is going to crash, or that somehow that nation will blindside us and that its markets might fall 60%.
This is like saying in March 2009 that the U.S. markets were in for a hard landing — after they had already fallen over 50%. Folks who acted on this argument and bailed not only sold out at the worst possible moment, they then added agony to injury by sitting on the sidelines as the markets soared 95.68% higher over the next two years.
People forget that the U.S. stock market — as measured by the Dow Jones Industrial Average using weekly data — fell more than 89% from 1929 to 1932, more than 52% from 1937 to 1942 and more recently experienced a decline of more than 53% from 2008 to 2009 — and that doesn’t even account for four 40+% declines beginning in 1901, 1906, 1916 and 1973.
Each was a great buying opportunity, and following those meltdowns, U.S. markets rose more than 371% from 1929 to 1932, more than 222% from 1949 to 1956, more than 128% from 1937 to 1942, and more than 95.68% in just over the two years starting in March 2009 — one of the fastest “melt-ups” in market history.
People forget that world markets dropped 40% to 80% in 1987. And as legendary investor Jim Rogers noted earlier this month, that was not the end of the secular bull market in stocks, either.
People forget that our nation endured two world wars, a depression, multiple recessions, presidential assassinations, the near-complete failure of our food belt, plus the deadliest terrorist attacks the world has ever seen — just to name a few.
And guess what? The U.S. has still been the best place to invest for the last 100 years.
So what if China backs off or slows down?
The Asian currency markets blew up in 1997. Mexico’s market passed out during the great tequila crisis of 1994. And Argentina failed to the tune of a 76.9% crash starting in 1997, only to give way to a 1,724.56% rally from 2001 to 2011.
Let’s see…gold rose by over 600% in the 1970s, then fell by 50%, which terrified investors at the time. It subsequently rose by more than 850% — something else Rogers noted in recent interviews, as have I.
China is undoubtedly going to have several hard landings in our lifetime. Despite the fact that China is thousands of years old, modern China is a mere 40 years old — if you consider its birth to be the nation’s opening following the historic Nixon-Kissinger visit in 1972.
And today’s China has 1.3 billion people — all of whom want to live the way you do.
The country is growing by an average of 9% a year or more and has done so every year for the last 41 years straight. Meanwhile, Washington has just poured an estimated $7.7 trillion into our economy and the best we can do is 2.5%. The EU is on track for 0.2% growth in 2012 after trillions in euro backing there.
Make no mistake: China’s government is well aware that it has a problem. Unlike our own government and those in the EU, Beijing raised bank-reserve requirements repeatedly before loosening them a bit last month. It hiked interest rates six times in the last two years.
Beijing is deliberately tapping on the brakes. China’s government actually wants segments of its economy to fail so they can reboot parts of the system, including the real estate market, which is a prime example of this.